India's Economic Growth Forecast Adjusted Amid Global Tensions

India's economic growth is projected to decline to 6.7% in the current fiscal year, down from 7.7% in 2025-26, as per BMI's report. The slowdown is attributed to diminishing momentum and rising oil prices due to the Iran conflict. Tax reforms may help mitigate inflation, but uncertainties and higher input costs could hinder investments. Vehicle registrations and electricity generation data indicate a slowdown in growth. Additionally, potential below-normal rainfall during the monsoon season could further impact GDP. The report highlights India's sensitivity to energy price fluctuations, with crude prices recently surging significantly.

By Narendra Chaudhary May 11, 2026, 15:13 IST

Economic Growth Projections

New Delhi: According to BMI, a firm under the Fitch Group, India's economic growth is projected to slow to 6.7% in the current fiscal year, down from 7.7% in 2025-26. This anticipated deceleration is attributed to diminishing economic momentum and the impact of rising oil prices due to the ongoing conflict in Iran. The firm highlighted that the potential escalation of the Iran-US conflict poses additional risks to India's growth outlook, necessitating a careful balance between defense spending and fiscal consolidation.

BMI noted that the tax reforms implemented in GST and income tax in 2025 would help mitigate some effects of inflation driven by rising costs. Furthermore, a more accommodating monetary policy is expected to bolster capital investments, although increased uncertainty from the conflict and higher input costs may hinder overall investment levels.

The firm revised its growth estimate for the January-March quarter of 2026 to 8% year-on-year, surpassing its previous forecast of 7.8%. However, it maintains a 6.7% growth forecast for FY2026-27, citing that the benefits of last year's tax reforms are likely to diminish as input costs rise in the new fiscal year.

Data on vehicle registrations indicates a slowdown, with new registrations increasing by 9% year-on-year in April, a drop from 23% in the previous quarter. Similarly, electricity generation saw a 2.7% year-on-year growth last quarter, primarily driven by demand in January and February, with March showing only a 0.9% increase.

BMI anticipates that limited energy and food supplies in FY2026-27 will further restrain consumption growth while contributing to inflationary pressures. The ongoing conflict in Iran has already impacted supply chains, which has been incorporated into the 6.7% growth estimate for FY27. Additionally, the Indian Meteorological Department forecasts below-normal rainfall during the upcoming monsoon season due to El Niño, which the International Monetary Fund estimates could reduce India's GDP by 0.1%.

BMI's analysis suggests that if Brent Crude prices rise to approximately USD 90 per barrel, GDP growth could decline by 0.4-0.7 percentage points, indicating that India's economy is particularly sensitive to fluctuations in energy prices within the Asian context. Following the rejection of Iran's peace proposal by the United States, crude prices surged to USD 105 per barrel, a significant increase from the USD 73 per barrel level before the conflict began on February 28, and reaching a four-year high of USD 126 per barrel on April 30.